Have you recently sold some property or stocks for more than you initially paid? If so, well done on your profitable investment! It’s important to note, though, that you might need to include this profit, known as a capital gain, on your tax filing. 

Capital gains arise from the sale of investments such as shares, bonds, property, or real estate. These gains must be reported on Schedule 3 of your tax return (and Schedule G for those living in Québec). 

Key Points on Capital Gains and Your Taxes: 

Taxing Capital Gains 

In simple terms, only half of your capital gains are subject to tax. The exact tax you pay depends on your overall income for the year. This means 50% of your profit from selling an investment is considered taxable income, which is then taxed at your personal income tax rate. For example, if you sold a property with a $100,000 profit, $50,000 of that would be considered taxable.  

Capital Gains vs. Capital Losses 

If you sell something for less than its purchase price, you’ve incurred a capital loss. 

This loss can offset any capital gains, reducing the amount of tax you owe. If your losses exceed your gains, you can carry these losses over to previous or future tax years to lessen taxable gains. 

Keeping Records 

It’s crucial to organize and retain all documents related to the purchase and sale of your investments. This includes purchase dates, costs, commissions, the Adjusted Cost Base (ACB), and any improvements made. Documents like the T5008 slip for securities or the T3 slip for estate income are examples of what you may receive and should keep. 

Sales and Gifts 

When you give away an investment or sell it below market value to someone outside your immediate family, the capital gains are calculated as if you sold it at its fair market value. Different scenarios can affect how your gain is calculated, but the principle is to ensure fair taxation. 

Sharing Gains with a Spouse 

Generally, you cannot split capital gains with your spouse to lower your taxes due to attribution rules. However, if an investment was jointly made, capital gains can be divided according to each person’s contribution. 

Planning Ahead 

If you anticipate selling an investment at a profit, consider strategies to minimize your tax liability, such as balancing the gain with a loss from another investment or increasing your RRSP contributions. Timing can also play a role; selling in a year when your income is lower might place you in a lower tax bracket. 

If you’re unsure about how to report your capital gains or losses, consider seeking advice from Orientum Group.